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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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Our small business has a gross annual income of aprox $100,000

Resolved Question:

Our small business has a gross annual income of aprox $100,000 and a net of about $30,000. Can we file bankruptcy if a judgement of $50,000 has been entered against us for an injury case? If not could we if the judgement was for a higher amount?
Submitted: 10 months ago.
Category: Bankruptcy Law
Expert:  cfortunato replied 10 months ago.

cfortunato :

 


Hi - my name is XXXXX XXXXX X'X a Bankruptcy attorney here to assist you.

cfortunato :

Are you asking about filing a Bankruptcy for your business or for yourself personally (or both)?

cfortunato :

Does your business own significant assets?

cfortunato :

Does your business have a market value (i.e., could it be sold)?

Customer:

only asking about bankruptcy for the business, the only significant assets the business owns are incumbered and the business currently has a negative net worth of $9000

cfortunato :

Thank you for your response.

cfortunato :

Based on the information you provided, it is unlikely a Bankruptcy would help.

cfortunato :

There are 2 types of business Bankruptcy - Chapter 7 and Chapter 11.

cfortunato :

With a Chapter 7, assets are sold to pay creditors, and the business usually closes as a result.

cfortunato :

With a Chapter 11, creditors must agree to take less than what is owed.

Customer:

So if our assets are incumbered(but not upsidedown) can the court order us to sell them and pay the plaintiff with anything left over after paying off whats owed to our other creditors?

cfortunato :

The judgment holder would be able to place a lien on your assets. The judgment holder would be the second lienholder for the assets that are already encumbered.

Customer:

Regardless of the amount of the first lien?

cfortunato :

The judgment holder would be able to force the sale of any assets that have equity.

Customer:

So even if there's equity in an asset above and beyond the lien a judgement would not force us to sell it?

cfortunato :

Yes - but if the first lien is more than or close to the market value of the assets, the judgment holder would not be able to force the sale of those assets.

cfortunato :

The judgment holder can force the sale of assets only if they do have equity.

cfortunato :

(Equity means the assets are worth more than what is owed to the first lienholder.)

Customer:

Ok I think I understand but just to clarify in example if we have a company vehicle that's worth $10,000 and a lien against it for the same amount a judgement from a different creditor cannot force the sale of the asset, but if the lien on the same vehilce is only $2000 because we've paid off most of the debt then the judgement can force us to sell the asset and pay anything we get above the $2000 towards the judgement?

cfortunato :

Yes - that is correct.

Customer:

ok great thanks for all your help!

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 4 other Bankruptcy Law Specialists are ready to help you
Customer: replied 10 months ago.

Have another question relating to the last one. If we are forced to sell our assets that have a lien on them but still have equity who determines the value of the assets? A third party appraiser? And who pays for the appraiser?

Expert:  cfortunato replied 10 months ago.

In most cases, the assets are sold at an auction to the highest bidder (regardless of the actual worth).
A judgment holder can use an appraiser to help determine the value of the assets - to help determine whether or not it would be worthwhile to have an auction, because it would not make sense to pay for an auction if the assets cannot be expected to sell for more than what is owed to the first lienholder (in addition to the cost of the auction - often approximately 5%).
If the judgment holder uses an appraiser, the judgment holder has to pay for the appraiser.

cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 4 other Bankruptcy Law Specialists are ready to help you
Customer: replied 10 months ago.

In relation to the last few questions if their is a lien already on assets our business owns and a judgement holder seeks to put a second lien on them, who determines and how is it determined that there is or is not equity in the asset? The court?

Expert:  cfortunato replied 10 months ago.
A judgment holder can put a lien on assets that are already encumbered - regardless of the actual value of those assets.
Whether the second lienholder can arrange to have those assets sold at an auction depends only on whether those assets can be sold for enough to pay the first lienholder in full. A court will not get involved in a determination of what those assets are worth, as it is presumed the assets are worth what they were sold for - when they are sold at a public auction.
Additionally, there is no legal requirement that the assets be appraised before an auction. If, during an auction, the assets cannot sell for enough to pay off the first lienholder in full, the assets cannot be sold. This is one of the reason many auctions have a minimum bid.
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 4 other Bankruptcy Law Specialists are ready to help you
Customer: replied 10 months ago.

So in example again if a asset is worth $10,000 and the first lien is for 15,000 the judgment holder can still put a second lien on the asset but cannot force the auction of it? Or they can still force the auction just to see if anything will be left over from paying the first lien to pay them and in doing so find out/determine the value of asset? Also is there a statute of limitations for liens from a judgement?

Expert:  cfortunato replied 10 months ago.
The second option is correct. They can arrange for an auction to be set up. If they cannot get a minimum bid - which is at least enough to pay off the first lienholder - the asset cannot be sold.
Of course, it would not make sense for a second lienholder to arrange an auction when an asset is clearly worth less than what is owed to the first lienholder - as the second lienholder has to pay for the auction whether or not assets are sold.
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience: Bankruptcy professor.
cfortunato and 4 other Bankruptcy Law Specialists are ready to help you
Customer: replied 10 months ago.

Ok great thank you for the continued detailed explanations i really appreciate it. So is there a statute of limitations for a lien acquired from a judgment? Would the lien expire if the judgement was not renewed?

Expert:  cfortunato replied 10 months ago.
You're welcome!
Once a lien is placed on an asset, that lien remains indefinitely on the asset - even if the judgment can no longer be enforced because of the Statute of Limitations (SOL), which is 5 years in Arizona, and which can be renewed for an additional 5 years.
So, a judgment holder has an initial 5 - 10 years to place a lien on property, but once the lien is in place, the lien remains indefinitely.
Customer: replied 10 months ago.

Great thanks again!

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